Research Reports

Review of Dabur's results by Edelweiss Finance

| Updated on January 11, 2018 Published on May 02, 2017

Dabur India (DABUR IN, INR 287, Buy)

Dabur India’s (Dabur) Q4FY17 revenue (down 4.8% YoY) came in line, while EBITDA and PAT (flattish YoY) surpassed estimates led by better-than-expected margin.

Despite strong base of 7% YoY, domestic volumes jumped 2.4% YoY (down 5.0% YoY in Q3FY17). Gross margin dipped by 163bps YoY, but EBITDA margin surged 115bps YoY led by 136bps YoY savings in ad spends and 100bps and 42bps YoY savings in staff and other expenses, respectively.

Dabur gaining market shares in key categories —oral care, hair care, home care, skin, foods — is a positive and we envisage it to be key beneficiary of increasing herbal trend. Maintain ‘BUY’.

Domestic business on recovery road; international operations tepid

Dabur’s domestic business clocked overall growth of 0.1% YoY versus dip of 6.5% YoY in Q3FY17. While toothpaste, foods and health supplements jumped 9.0%, 7.9% and 5.0% YoY, respectively, growth in hair care, home care and OTC & ethicals dipped 4.0%, 6.5% and 4.0% YoY, respectively.

However, market share gains sustained — garnered 30bps in hair oil, 100bps in toothpaste, 70bps in air fresheners, 100bps in mosquito repellent creams and 300bps YoY in juices. International business was impacted by currency devaluation in Egypt, Turkey & Nigeria and economic slowdown in MENA region-reported 4.5% YoY dip in constant currency growth (CCG; flattish in Q3FY17), though growth in local currency was strong.

Q4FY17 conference call: Key takeaways

GST will lead to destocking in Q1FY18 — Dabur and distributors are largely ready for implementation, but lower down the chain preparedness is weak. The company’s rural growth surpassed overall growth in Q4FY17.

Dabur has started regaining some of the lost share in honey; it believes the worst is behind in terms of competition from Patanjali. Shampoo portfolio continued to remain under pressure due to impact on wholesale channel — shifted Vatika to ayurvedic from current herbal positioning.

Outlook and valuations: Positive; maintain ‘BUY’

We expect recovery in volumes and premiumisation on back of new launches and ayurvedic focus. Uptick in rural spending and government’s stimulus remain key triggers. The stock is trading at 29.8x FY19E EPS. We maintain ‘BUY /SO’ with a target price of INR327.

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